Who's Left to Buy Bank of America?

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Owners of Bank of America  (NYSE: BAC  ) stock (like myself) may be starting to worry that B of A optimism has gone too far. A couple of years ago, it was tough to find anyone willing to say a good word about the bank. Today, it seems hard to find anyone who's saying anything negative.

The about-face may seem at first blush like good news, but it could also spark the concern that -- as my fellow Fool David Hanson put it -- "dumb money" has rushed into the stock. At the same time, it compels the question: If everyone is already bullish on the stock, who's left to buy?

The data suggests that there are at least three major groups that could push Bank of America's stock higher.

1. Giant mutual fund companies
Fidelity, Wellington, and Capital Research and Management -- three of the largest fund companies in the world -- all currently have a significant stake in Bank of America. However, each had an even larger stake prior to the financial crisis. 

According to the numbers, combined, these investors owned an additional 5% of Bank of America in early 2006 vs. today. Put another way, if the three were to increase their stakes to what they were in 2006, it would require a total investment of $7 billion. 

2. Big hedge fund managers
One of the biggest downward changes in Bank of America ownership over the past few years came from hedge fund giant John Paulson. At one point, his fund owned north of 2% of B of A's outstanding stock. That'd be equivalent to a position of around $2.7 billion at today's prices.

I assume that Paulson feels sufficiently burned by his B of A investing experience, so I don't expect that he's going to be diving back in with both feet anytime soon. However, it's a reminder of just how much big money is sloshing around in hedge funds out there that could end up sloshing in Bank of America's direction.

3. The public
By my calculations, "the public" -- that is, the B of A stock not held by institutions or insiders -- owned around 29% of the company in 2006. At the end of 2012, that percentage was at 27%. That may not seem like a huge difference, but that 2-percentage-point difference could represent billions of dollars in buying pressure if retail investors get excited about the bank again.

There's a flip side
Obviously, there are plenty of potential sellers that could have the opposite effect on the stock. Interestingly, the asset management arms of a lot of B of A competitors -- notably CitigroupJPMorgan Chase, and Goldman Sachs -- have jumped on the Bank of America bandwagon and have been building sizable positions. They could very easily reverse that trend. And avid cheerleaders like Bruce Berkowitz could change their tune.

But investors concerned about who's left to buy can stop worrying: If the bank continues to execute, there's still plenty of money that could be thrown at the stock.

Get the full story first
Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

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8/25/2016 4:00 PM
BAC $15.53 Up +0.13 +0.84%
Bank of America CAPS Rating: ****